Before I start, this is my first "long" editorial-style blog in over a year. I also understand if you cannot read it all, but please try

I am going to make a bold statement here: there should only be two consoles on the market in this day and age. Before any one blasts me, just hear me out.

Throughout the early generations of video games, you saw only two major consoles. In the third (NES and Master System) and fourth (SNES and Mega Drive) generations of consoles, there were only two major console makers – Sega and Nintendo. The third generation saw 73 million consoles sold, whilst the fourth saw 88 million (including the PC Engine), however, the vast majority of sold consoles were from the market leader, be it the NES (60 million to 13 million) or the SNES (49 million to 29 million).

This generation change saw a modest increase in the technological powers of the consoles. There is, as you know, a vast difference in the visual and technical abilities of the SNES over the NES. This means that the games needed more detail, which required more people to work on games and thus requiring the production of games to have higher budgets. These increased budgets mean that sales had to increase also. This was achieved, however, as the technical advances were not revolutionary (the games remained in the second dimension), and the increase in amount of households owning consoles had meant that more people would buy games. Therefore, the increased cost of production of games was met with an increase in game sales.

This pattern was repeated with the introduction of the Playstation in the fifth generation, with the top three consoles racking up a total of 152 million in sales. This generation brought games into the third dimension, meaning that costs skyrocketed. However, this was matched by an increase in the amount of people buying games (more consoles in more households than before), and the increased cost of producing the games was met with increased revenue from game sales.

Again, this pattern was repeated with the sixth generation of consoles, where more visual and technical advances in games meant that the cost of producing games increased, but this was met by an increase in game sales (console sales for the PS2, Xbox, GC and Dreamcast totalled 196 million, and is still growing).

However, this generation is different. Even though the Playstation 3 and Xbox 360 have come along with vastly increased technical levels, the amount of people owning the consoles has not increased enough to make it financially viable for developers to invest money in big-scale games. I mean, if costs double between the sixth and seventh console generation, but sales of consoles do not match this, there will be less of a market for the sale of the game, meaning that a higher proportion of people owning a console need to buy the game for it to be profitable, which is a riskier than having an increased audience.

Now, as you are probably aware, I am making a connection between console sales and the sales of games. I'd like to distinct the two.

Console makers (Sony, Nintendo and Microsoft) only make the consoles because they think they can eventually make a profit out of them, whether it be from profit per console sold, profit from sale of accessories or profit from licenses paid by third party developers to be allowed to release games on their system. To measure the true financial viability of the consoles themselves, the money made from first party developed or published games needs to be removed. If a company relies on their first party games to return a profit to cover losses on the console, then it is better off for that company to just become a third party developer of games, and exit the console business entirely.

Now, I am going to repeat my bold starting statement: there should only be two consoles on the market in this day and age. If you look at how the previous generation panned out, knowing it was the first generation since the NES that there were three viable consoles out on the market, you can see that, from the consoles, Sony was the only company to make a profit and decent return on their investment. As you may well be aware, Microsoft lost billions with the original Xbox, and Nintendo, even though it maintained a profit as a company, the majority of that profit came from their handheld lines and the sale of their first-party games, not from the actual console itself, if you take into account the cost of research and development, manufacturing and marketing.

Now, at that time, Sony and Microsoft could handle the cost of consoles. Their mentality was that the money they received from their whole division in video games will mean that the initial investment in the console was worth it. However, times have changed. In the current economic environment, companies need to make sure that all of their divisions are making the best possible return on their investment, and cut anything that isn't. This is where it gets difficult.

For Microsoft, the Xbox 360 is actually making money. Every console sold makes them profit, yet alone the millions they make from Xbox Live, accessories and from licenses by third parties. The Xbox 360 is in a comfortable position at the moment. Even though Microsoft had announced cuts to the workforce, the majority were "back line" staff, which were not associated with frontline game making. The Xbox 360, for Microsoft, is past the point of draining money and is on the journey to recouping the initial research and development cost of the console. This makes it attractive to Microsoft, as, unless something terrible happens, the Xbox 360 will be around for another few years, giving a steady flow of profit.

Unfortunately for Sony, the opposite is occurring for them with the Playstation 3. The PS3, whilst production costs are lowering, still loses money per console sold. The PS3 also has a lower sales rate of third party titles, which means that they are not receiving as much income from licensing to allow third parties to develop games for their console. Another negative, financially, for the PS3 is the lack of money coming from online services, which, unlike Microsoft, allows for free online gaming.

Now, in the current economy, if you were CEO of Sony Corporation, and you saw a product you were producing constantly failing to meet sales expectations, making a loss per unit it sells and seeing very little ways in which it is making money through either direct or indirect means, then would you not seriously consider pulling the plug on it?

This is what I presume could happen either this year or next if the Playstation 3 continues to miss sales targets, continues to have third party games sell lower than the competition and continues to lose money, unless there is foreseeable opportunities in the future where the money can be remade.

I am not one who is utterly against Sony and the Playstation, but I am just an observer telling it how I see it. With the current state of the economy, companies need to be more financially prudent. Many people say that you can look to the past to see the future, and the past, where two major consoles have stood out in a generation (whilst the others had dismal sales in comparison), shows that the industry can only sustain two large players in the market, and not three large ones. It is obvious that the Wii will not be discontinued, as Nintendo is making mega bucks per console sold, which leaves the possibility open to either the Xbox 360 or the PS3 dying by the end of this year.

EDIT: Just to let you guys know, the following sources (1, 2 and 3) all state that the 360 is making a profit per unit sold. Now, even though these are from 2006, all three sources state that the 360 made ~$75 on every unit sold. Two of the three also said that costs reduced by 40% over the year gap between launch and the dates of these articles. I find it hard to believe that if they were making a profit per unit in 2006 that they wouldn't be making it in 2009.